Merely Having an In-State Income Beneficiary Insufficient to Allow a State to Tax All Trust Income

The U.S. Supreme Court appears to be making June 21 its annual tax opinion day.  Or, at least, they’ve issued the major tax opinion of the term on June 21 for the past two years.  While last year’s issue related to sales taxes (Wayfair), this year the issue is whether a state can tax a trust solely based on the trust having a resident current income beneficiary, even if that beneficiary has no right to force a current distribution of such income, no such distribution is made, and there’ s no guarantee the beneficiary will ever receive such a distribution.

A unanimous Supreme Court decided that the answer is no, a state cannot impose its tax in that situation, in the case of North Carolina Department of Revenue v. The Kimberly Rice Kaestner 1992 Family Trust, United States Supreme Court, Case No. 18-457.[1]  Justice Sotomayor wrote the main opinion on behalf of the Court.

Read More

South Dakota Governor Proposes Bills to Begin Requirement of Collection of Tax by Out of State Sellers and Marketplaces on November 1

As states scramble to begin collecting sales taxes after the Supreme Court’s decision in the case of South Dakota v. Wayfair, one state that has not yet been able to begin collecting the tax is, of all things, the state of South Dakota itself.  Those who have read the Supreme Court’s decision will remember that the decision did not actually formally approve South Dakota’s law and order the defendants to pay the taxes.  Rather, the case was sent back down to South Dakota state courts to consider other potential objections.

In order to get around this problem, the Governor of the State of South Dakota has called a special session of the state legislature for September 12 and issued two draft pieces of legislation to allow the state to begin collecting taxes from remote sellers beginning on November 1, 2018.

Image copyright Kalashnikova

Read More

Colorado Publishes Rules for Sellers to Comply with Tattletale Use Tax Reporting

The Colorado Department of Revenue has published an emergency rule (Rule 39-21-112(3.5)) to implement Colorado’s “tattletale” use tax reporting requirement for sellers who have more than $100,000 of sales into Colorado and do not collect Colorado sales tax.  The law in question is the one that was upheld by the Tenth Circuit Court of Appeals in the case of Direct Marketing Association v. Brohl, CA10, Case No. 12-1175, 2/22/16, cert denied.

Image copyright radiantskies / 123RF Stock Photo

Read More

Washington State Enacts Use Tax Tattletale Bill with Very Low Threshold

The state of Washington has upped the ante regarding the risk to businesses who don’t pay attention to individual state laws requiring reporting on sales to residents of a state by a business with no connection with the state.  Washington’s governor signed into law Washington H.B. 2163, a “tattletale” use tax bill that is triggered whenever a remote seller in a year has more than $10,000 in gross sales to Washington state residents.

A “tattletale” bill does not attempt to require remote sellers to collect sales tax for the state on their remote sales.  Rather the bill requires that such sellers take various steps to “turn in” such buyers to the state and “motivate” the buyers to comply with their use tax obligations.  The law will often require some form of notice to potential buyers of their use tax obligations, along with later reports given at the end of the year to both the buyers (listing items they bought for which use tax would be due) and the state in question.

Image copyright rawpixel / 123RF Stock Photo

Read More

Colorado Law Requiring Out of State Sellers to Report on Colorado Customers Who May Owe Use Tax Upheld by Tenth Circuit

Normally in this venue we discuss federal tax matters, but in this case the applicability of a Constitutional provision (or perhaps lack of a provision, given the issue is the Dormant Commerce Clause) may have a broad impact.  The case in question is a challenge to a Colorado provision requiring out of state sellers to report to the state customers who are residents of the state to assist in collection of use tax from those individuals (Direct Marketing Association v. Brohl, CA10, Case No. 12-1175).

Read More